108 U.S.

CLARK, General Treasurer, etc., and another

Charles Hart and Wm. g. Roelker, for appellants.

Robert R. Bishop and John C. Gray, for appellees.[Argument of Counsel from pages 437-442 intentionally omitted]MATTHEWS, J.

The appellees, who were complainants below, filed their bill in equity, asassignees in bankruptcy of the Boston, Hartford & Erie Railroad Company,against Samuel Clark, general treasurer of the state of Rhode Island, and thecity of Boston and Frederick U. Tracey, its treasurer. The bill alleged

That the Boston, Hartford & Erie Railroad Company was a corporation createdby the states of Connecticut and Massachusetts for the purpose of building,acquiring, and operating a railroad from Boston, in Massachusetts, toWillimantic, in Connecticut, and from Providence, in Rhode Island, toWillimantic, and from Willimantic through Waterbury to the state line ofConnecticut, and thence to Fishkill, in New York; that the directors of thecompany, without authority from the corporation or by law, applied to thelegislature of Rhode Island in 1869, and obtained the passage of an act entitled'An act in addition to an act to ratify and confirm the sale of the Hartford,Providence & Fishkill Railroad to the Boston, Hartford & Erie RailroadCompany,' by which the company was authorized to locate and construct arailroad in extension of their line of railroad purchased of the Hartford,Providence & Fishkill Railroad Company, commencing at their depot inProvidence, thence running to the easterly line of the state in or near the villageof Valley Falls, to meet and connect with a Massachusetts railroad extendingthrough North Attleborough from Boston, so as to make a continuous line of

railroad in a northerly and southerly direction between Providence and Boston;

that this act contained a provision in the following terms: 'This act shall not gointo effect unless the said Boston, Hartford & Erie Railroad Company shall,within 90 days from the rising of this general assembly, deposit in the office ofthe general treasurer their bond, with sureties satisfactory to the governor ofthis state, in the sum of $100,000, that they will complete their said road beforethe first day of January, A. D. 1872;' that this condition was not complied with,and that the said act, therefore, never took effect and is wholly null and void;that, after the passage of the act, the directors and officers of the corporation,without authority and in abuse of their trust and duty, filed with one SamuelParker, then the general treasurer of Rhode Island, a paper, purporting to be thebond of the corporation, but without sureties, and fraudulently took of the fundsof the corporation the sum of $100,000, and deposited the same with the citytreasurer of Boston in exchange for the obligation of that city, a copy of whichis as follows:3

'TEMPORARY LOANS, CITY OF BOSTON.

'$100,000.

No. 6.

'This certifies that, for value received, there will be due from the city of Boston,payable at the office of the city treasurer, on demand, after the first day ofDecember next, to the general treasurer of the state of Rhode Island, or order,the sum of $100,000, with interest at the rate of 7 per cent. per annum, incurrent funds.

'This loan being authorized by an order of the city council passed the ninth dayof June, 1869, to anticipate the income of the present financial year.

'Interest will not be allowed after this note is due.

'June 28, 1869.

10

ALFRED T. TURNER, Auditor.

11

'FRED. U. TRACEY, Treasurer.

12

NATH'L B. SHURTLEFF, Mayor.'

13

That the directors and officers of the company, without consideration andwithout authority, deposited this certificate and obligation with the said Parker,who received the same without warrant of law, and thereupon held the same tothe use of the railroad company; that the corporation never accepted the act ofthe legislature recited; that the railroad authorized thereby has never been built,nor any work done thereon, nor has the state of Rhode Island, nor any citizenthereof, suffered any damage or loss by reason thereof; that the generalassembly of Rhode Island considered that the filing of the certificate andobligation of the city of Boston was not a compliance with the act, and did notratify the taking of the same till after the bankruptcy of the railroad company;that said bankruptcy was adjudicated on October 21, 1870, and thecomplainants became assignees in bankruptcy of said company from that date,and entitled to the money represented by the said certificate; that SamuelParker having died, the respondent Clark succeeded him as general treasurer ofRhode Island, and came into possession of the said certificate, which, it isalleged, however, he holds wrongfully, and in his individual and not his officialcapacity, and to the use of the complainants, but which, nevertheless, hethereatens to collect and withhold from them the proceeds thereof.

14

The prayer of the bill is

15

'That the said respondent Clark may be decreed to have no right, title, orinterest in or to the said paper writing A, or in or to the said money so depositedwith the said respondent Tracey, or to any part thereof, and that he may bedecreed to assign and deliver over the said paper A to your orators, and may beenjoined and restrained from presenting the same to the said respondent Tracey,or to the said city of Boston, or from receiving any money or paymentwhatsoever thereon or therefor, or any part thereof, or from receiving or holdingthe said sum of $100,000, or any part thereof, from the said respondent Tracey,or the said city of Boston, and that the said respondent Tracey and the said cityof Boston may be decreed to pay over to your orators, as assignees as aforesaid,the said sum of $100,000, with interest thereon, and may be enjoined andrestrained from paying the same, or any part thereof, or any money on accountthereof, to the said respondent Samuel Clark, the general treasurer of the stateof Rhode Island, and that your orators may have such other and further relief asto your honors shall seem meet, and as the nature and circumstances of the caseshall require.'

16

To this bill a demurrer was filed by Clark for want of jurisdiction, on theground that it was, in substance, a suit by citizens of one state against the stateof Rhode Island. This demurrer was overruled. Clark then filed his answer,denying the material allegations of the bill, asserting that the transaction was

with the state of Rhode Island, through the treasurer in his official capacity, andinsisting upon the immunity of the state from suit by citizens of other states as adefense. The cause came on for hearing upon the pleadings and proofs, whenan interlocutory decree was passed, April 15, 1878, ordering the payment of themoney due from the city of Boston upon the loan certificate into the registry ofthe court, with liberty to the defendant Clark to take and file evidence insupport of any claim for damages by reason of the breach of the bond of theBoston, Hartford & Erie Railroad Company to the state of Rhode Island; andfurther ordering that on final hearing, and upon filing in court the certificate ofindebtedness, the general treasurer of the state of Rhode Island should have andrecover of the said sum in the registry such portion, or the whole thereof, asshould amount to the sum, if any, for which any surety might or for which theprincipal obligor in said bond would be liable, upon the evidence, either for anypenalty or damages by reason of the non-performance and breach of theconditions of said bond.17

On May 3, 1878, the city of Boston paid into court the sum of $100,000, and, inaddition, the interest accrued to December 1, 1869, and subsequently, onFebruary 25, 1880, an additional amount for interest in full. On March 17,1880, the following claim of the state of Rhode Island was filed by theallowance of the court as of April 15, 1878, after the entry of the interlocutorydecree of that date: 'And now comes the state of Rhode Island, by theundersigned, the same counsel who have appeared for the defendant Clark,general treasurer of said state, and, without prejudice to the demurrer of saidgeneral treasurer, claims the fund in the registry of the court.' This was signedby counsel. On final hearing the fund was awarded to the appellees; and fromthat decree Clark, general treasurer of the state of Rhode Island, and the state ofRhode Island appealed. The state itself is a party to the appeal bond, whichrecites that the state of Rhode Island was an intervenor and claimant of the fundin court, and that a decree was rendered against it as such.

18

The bond executed and delivered by the Boston, Hartford & Erie RailroadCompany to the state of Rhode Island is as follows:

19

'Know all men by these presents that the Boston, Hartford & Erie RailroadCompany, a corporation created by the general assembly of the state orConnecticut, is held and firmly bound to the state of Rhode Island andProvidence Plantations in the sum of one hundred thousand dollars, to be paidto said state of Rhode Island and Providence Plantations; to which payment,well and truly to be made, the said corporation doth bind itself and itssuccessors firmly by these presents.

20

'The condition of the aforewritten obligation is such that whereas, by an act of

the general assembly of said state of Rhode Island, entitled 'An act in additionto an act entitled an act to ratify and confirm the sale of the Hartford,Providence & Fishkill Railroad to the Boston, Hartford & Erie RailroadCompany,' passed at the January session, 1869, said Boston, Hart-ford & ErieRailroad Company are authorized and empowered to locate, lay out, andconstruct a railroad in extension of their line of railroad purchased of theHartford, Providence & Fishkill Railroad Company, commencing at a point intheir said purchased railroad at or near their freight depot in the city ofProvidence; thence running westerly and northerly by a line westerly of thestate's prison, a little easterly of the Rhode Island Locomotive Works; andthence by nearly a straight line and crossing or running near to Leonard's Pond;and thence passing between the villages of Pawtucket and Lonsdale, and overand above the Providence & Worcester Railroad; thence continuing to theeasterly line of the state, in or near the village of Valley Falls:

21

'Now, therefore, if said Boston, Hartford & Erie Railroad Company shallcomplete their said railroad before the first day of January, A. D. 1872, thenthe aforewritten obligation shall be void; otherwise be and remain in full forceand effect.

22

'In testimony whereof, said Boston, Hartford & Erie Railroad Company havecaused this instrument to be signed by John S. Eldredge, its president, and itscorporate seal to be thereto affixed, this twenty-third day of June, 1869.

23

[L. S.]

24

'BOSTON, HARTFORD & ERIE R. R. Co.,

25

'By JOHN S. ELDREDGE, President.

26

'Executed in presence of

27

'SAMUEL CURREY.

28

'H. S. BARRY.'

29

The testimony taken in the cause pursuant to the interlocutory decree, it is

admitted, failed to prove any damage or loss occasioned to the state of RhodeIsland, or to any of its citizens or inhabitants, by reason of the failure of the

railroad company to comply with the conditions of this bond.

30

The first question for determination on this appeal is that of jurisdiction, raisedfirst by the demurrer and afterwards by the answer of Clark, general treasurerof the state of Rhode Island, on the ground that the suit was in effect broughtagainst a state by citizens of another state, contrary to the eleventh amendmentto the constitution of the United States. We are relieved, however, from itsconsideration by the voluntary appearance of the state in intervening as aclaimant of the fund in court. The immunity from suit belonging to a state,which is respected and protected by the constitution within the limits of thejudicial power of the United States, is a personal privilege which it may waiveat pleasure; so that in a suit, otherwise well brought, in which a state hadsufficient interest to entitle it to become a party defendant, its appearance in acourt of the United States would be a voluntary submission to its jurisdiction.while, of course, those courts are always open to it as a suitor in controversiesbetween it and citizens of other states. In the present case the state of RhodeIsland appeared in the cause and presented and prosecuted a claim to the fundin controversy, and thereby made itself a party to the litigation to the full extentrequired for its complete determination. It became an actor as well asdefendant, as by its intervention the proceeding became one in the nature of aninterpleader, in which it became necessary to adjudicate the adverse rights ofthe state and the appellees to the fund, to which both claimed title. The casediffers from that of Georgia v. Jesup, 106 U. S. 462, [1 SUP. CT. REP. 363,]where the state expressly declined to become a party to the suit, and appearedonly to protest against the exercise of jurisdiction by the court. Thecircumstance that the appearance of the state was entered without prejudice tothe demurrer of Clark, the general treasurer, does not affect the result. For thatdemurrer could not reach beyond the question of the right to sue Clark byreason of his official character, which became insignificant when the statemade itself a party; and in point of fact the bill was framed to avoid theobjection, by charging Clark as a wrong-doer in his individual capacity. For thegroundwork of the bill, whether it be regarded as directed against the officer orthe state, is that the transaction throughout was void, as ultra vires thecorporation. And this presents the next question to be considered. That questionarises and is to be determined upon the following statement of facts.

31

The Boston, Hartford & Erie Railroad Company was originally created acorporation by the laws of Connecticut. Its charter conferred authority upon itin these terms:

32

'Said Boston, Hartford & Erie Railroad Company may purchase * * * thefranchise, the whole or any part of the railway or railway property of any

railroad company located in whole or in this state, whose line or a portion of

whose line of railway, constructed or chartered, now forms part of a railwayline from the harbor of Boston, passing through Thompson to Willimantic, andfrom Providence through Willimantic to Hartford, Waterbury, and thencetowards the North river, the purpose of reaching a point at or near Fishkill, inthe state of New York; * * * and said Boston, Hartford & Erie RailroadCompany may make any lawful contract with any other railway company withwhich the track of said railroad may connect, in relation to the business orproperty of the same; and may take lease of any railroad, or may lease theirrailway to, or may make joint stock with, any connecting railway company inthe line of, and forming a necessary part of, and running in the same generaldirection as, their said route, and between its terminal points.'33

In pursuance of this authority the Boston, Hartford & Erie Railroad Companypurchased the franchises and railroad of the Hartford, Providence & FishkillRailroad Company. This latter company was a consolidated corporation,deriving its existence and powers from the laws, both of Connecticut and RhodeIsland, whose road, as defined in the acts of incorporation, constituted a linewithin the general description contained in the section from the charter of theBoston, Hartford & Erie Railroad Company, already quoted. By a subsequentact of the legislature of Rhode Island the sale and transfer of the Hartford,Providence & Fishkill Railroad, its property and franchises, to the Boston,Hartford & Erie Railroad Company was ratified and confirmed, so far as saidrailroad was situated in that state; and it was thereupon further enacted that the'said Boston, Hartford & Erie Railroad Company, by that name, shall and mayhave, use, exercise, and enjoy all the rights, privileges, and powers heretoforegranted and belonging to said Hartford, Providence & Fishkill RailroadCompany and be subject to all the duties and liabilities imposed upon the sameby its charter and the general laws of this state.'

34

The Hartford, Providence & Fishkill Railroad Company was, without question,so far as it owned and operated a railroad within the state of Rhode Island, acorporation in and of that state; and the Boston, Hartford & Erie RailroadCompany became its legal successor in that state, as owner of its property, andexercising its franchises therein, and became, therefore, in respect to its railroadin Rhode Island, a corporation in and of that state.

35

Thereafter, in January, 1869, the legislature of Rhode Island passed the act outof which the present litigation has grown, entitled 'An act in addition to an actentitled 'An act to ratify and confirm the sale of the Hartford, Providence &Fishkill Railroad to the Boston, Hartford & Erie Railroad Company." In its firstsection it is enacted as follows:

36

'The Boston, Hartford & Erie Railroad Company, a corporation created by thegeneral assembly of the state of Connecticut, are hereby authorized andempowered to locate, lay out, and construct a railroad in extension of their lineof railroad by them purchased of the Hartford, Providence & Fishkill RailroadCompany, commencing at a point in their said purchased railroad at or neartheir freight depot in the city of Providence; thence running westerly andnortherly by a line westerly of the state prison, a little easterly of the RhodeIsland Locomotive Works; and thence by nearly a straight line, and crossing orrunning near to Leonard's Pond, (so called;) and thence passing between thevillages of Pawtucket and Lonsdale, and over and above the Providence &Worcester Railroad; thence continuing to the easterly line of the state in or nearthe village of Valley Falls, there to meet and connect with a railroad extendingwesterly through North Attleborough, from the direction of Boston, authorizedby the common wealth of Massachusetts.'

37

The eighth section of the act is as follows:

38

'Said railroad, when the same shall have been constructed, shall be managedand protected in all respects according to the provisions of, and be subject to, anact entitled 'An act to incorporate the Providence & Plainfield RailroadCompany,' and the several acts in addition to and amendment thereof, and thegeneral laws of the state.'

39

The act thus referred to as the 'Act to incorporate the Providence & PlainfieldRailroad Company,' was the charter of the corporation by that name, in the stateof Rhode Island, that, by consolidation with a Connecticut company, formedthe Hartford, Providence & Fishkill Railroad Company.

40

The twelfth section of the act, recited in the complainant's bill, is as follows:

41

'This act shall not go into effect unless the said Boston, Hartford & ErieRailroad Company shall, within 90 days from the rising of this generalassembly, deposit in the office of the general treasurer their bond, with suretiessatisfactory to the governor of this state, in the sum of $100,000, that they willcomplete their said road before the first day of January, A. D. 1872.'

42

This act of the legislature of Rhode Island was duly accepted by thestockholders of the Boston, Hartford & Erie Railroad Company; the bondrequired by the twelfth section, as already set out, was executed and delivered;and the certificate of indebtedness, in lieu of sureties, was given by thecompany and accepted by the state.

43

It is now argued by counsel for the appellees that the party which, in all thesetransactions, was dealing with the state of Rhode Island, was the Boston,Hartford & Erie Railroad Company, in its character as a corporation of the stateof Connecticut; that, as such, it had no power, under the charter granted by thatstate, to build or own a railroad directly connecting Boston and Providence, norhad it, as such, any capacity to receive a grant of such a franchise; that,consequently, everything done or attempted in that behalf was ultra vires andvoid.

44

But the Boston, Hartford & Erie Railroad Company was also a corporation ofRhode Island. As such, it owned and operated a railroad within that state, andhad received and exercised franchises under its laws, to which it was in allrespects subject. It was the assignee of the road and rights connected therewith,formerly belonging to the Hartford, Providence & Fishkill Railroad Company;and it was this corporation, dwelling and acting in Rhode Island, that thelegislature, by the act in question, authorized to exercise the additional powersit conferred.

45

If it had had no previous existence as a corporation under the laws of Rhode

Island, it would have become such by virtue of the act in question. Foralthough, as a Connecticut corporation, it may have had no capacity to act orexist in Rhode Island for these purposes, and no capacity by virtue of itsConnecticut charter to accept and exercise any franchises not contemplated byit, yet the natural persons, who were corporators, might as well be a corporationin Rhode Island as in Connecticut; and, by accepting charters from both states,could well become a corporate body, by the same name and acting through thesame organization, officers, and agencies, in each, with such faculties in the twojurisdictions as they might severally confer. The same association of naturalpersons would thus be constituted into two distinct corporate entities in the twostates, acting in each according to the powers locally bestowed, as distinctly asthough they had nothing in common either as to name, capital, or membership.Such was in fact the case in regard to this company, so that in Rhode Island itwas exclusively a corporation of that state, subject to its laws and competent todo within its territory whatever its legislation might authorize. 'Nor do we seeany reason,' as was said by this court, Mr. Justice SWAYNE delivering itsopinion, in Railroad Co. v. Harris, 12 Wall. 65-82, 'why one state may notmake a corporation of another state, as there organized and conducted, acorporation of its own, quo ad hoc any property within its territorialjurisdiction. That this may be done was distinctly held in Ohio & M. R. Co. v.Wheeler, 1 Black, 297.' The same view was taken in Railway Co. v. Whitton, 13Wall. 270; in Railroad Co. v. Vance, 96 U. S. 459; and in Memphis & C. R. Co.v. Alabama, ante, 432, decided at the present term. The question of the powers

of the Boston, Hartford & Erie Railroad Company, as a corporation in Rhode

Island, and of the legal effect of its acts and transactions performed in that state,is to be determined exclusively by the laws of that state, and not by those ofConnecticut, which have no force beyond its own territory. It results, therefore,that the doctrine of ultra vires, as here urged by the appellees, has no place inthis controversy.46

It is, however, urged on behalf of the appelleesand this was the ground onwhich the decree below proceededthat the obligation required by the statuteand given by the company was a bond, in the penal sum of $100,000,conditioned that the company would completely build its road within the periodlimited, upon which no recovery can be had, except for such damages as maybe shown to have resulted to the state of Rhode Island from the breach of itscondition; that no damage on that account is proven, it being in fact admittedthat none actually resulted; that the certificate of indebtedness and the fundwhich has arisen from its payment were pledged merely, in lieu of sureties, ascollateral security for the satisfaction of the bond; and that, consequently, theclaim of the stae of Rhode Island against it having thus failed, that fund revertsto the appellees.

47

The proposition of counsel for the appellees, as stated by them, is that 'from aperiod at least as early the year 1650 down to the present time, bonds haveconstituted a distinct class of instruments, the effect of which is always thesame, in the same sense that the effect of a conveyance to A. and his heirs isalways the same. Such is the rule of equity. Such was the effect of the statutes.Consequently, if in a particular case parties have expressed their obligation inthe form of a bond, their liability is thereby determined to be an obligation toperform the condition or pay the damages actually sustained from nonperformance thereof;' and, as a statement of the rule, they cite the followingpassage, 2 Sedgw. Meas. Dam. (7th Ed.) 259, note:

48

'Of course, in this class of agreements, as in all others, when the contract takesthe ordinary form of a penal bond, the sum fixed will invariably be regarded asa penalty; and this might well be put, at the present day, on the ground ofintention, as derived from the writing itself, for this form of instrument is insuch common use that persons who resort to it must be held to have in view itslegal consequences.'

49

While this may be accepted as a sufficiently accurate statement of the general

rule, as to bonds with conditions, designed as an indemnity between privatepersons for non-performance of a collateral agreement, yet, in respect to suchcases, it cannot be considered as universally true. 'It is often a doubtful

question,' said the supreme judicial court of Massachusetts in Hodges v. King, 7

Metc. 583-587, 'whether the sum stipulated to be paid on the non-performanceof a condition is in the nature of a penalty, or is the amount settled by theparties for the purpose of making that certain which would be otherwiseuncertain. * * * The bond has indeed a condition; but that is a matter of formand cannot turn that into a penalty which, but for the form, is an agreement topay a precise sum under certain circumstances.' So that it cannot correctly besaid to be true, in all such cases, that the intention to treat the sum named in thebond as a penalty to secure the performance of the condition, and to bedischarged on payment of damages arising from non-performance, can beinferred as a rule of law, or a conclusive presumption, from the mere form ofthe obligation.50

Originally, at law, in case of breach of the condition of a bond, the amount

recoverable was that named in the obligation. So that, if the condition isimpossible either in itself or in law, the obligation remains absolute. As, 'if aman be bound in an obligation, etc., with condition that if the obligor do gofrom the church of St. Peter in Westminster to the church of St. Peter in Romewithin three hours, that then the obligation shall be void. The condition is voidand impossible, and the obligation standeth good.' So, again, if the condition isagainst a maxim or rule in law, as, 'if a man be bound with a condition toenfeoff his wife, the condition is void and against law, because it is against themaxim in law; and yet the bond is good.' Co. Lit. 206b. So, where the conditionis possible at the date of the instrument and becomes impossible subsequently,the obligation does not become thereby discharged, unless the impossibility ofperformance was the act of God, or of the law, or of the obligee. Accordingly,it was held by this court in Taylor v. Taintor, 16 Wall. 366, that when a personarrested in one state on a criminal charge, and released under his own and hisbail's recognizance that he will appear on a day fixed and abide the order andjudgment of the court on process from which he has been arrested, goes intoanother state, and, while there, is, on the requisition of the governor of a thirdstate, for a crime committed in it, delivered up, and is convicted and imprisonedin such third state, the condition of the recognizance has not become impossibleby act of law so as to discharge the bail; 'the law which renders the performanceimpossible, and therefore excuses failure, must be a law operative in the statewhen the obligation was assumed, and obligatory in its effects upon herauthorities.'

51

The ground, nature, and limits of the jurisdiction of courts of equity to relieveagainst penalties in such instruments is well stated by Mr. Justice STORY, inthis language:

52

'In short, the general principle now adopted is that, wherever a penalty isinserted merely to secure the performance or enjoyment of a collateral object,the latter is considered as the principal intent of the instrument, and the penaltyis deemed only as accessory, and therefore as intended only to secure the dueperformance thereof or the damage really incurred by the non-performance. Inevery such case the true test generally, if not universally, by which to ascertainwhether relief can or cannot be had in equity, is to consider whethercompensation can be made or not. If it cannot be made, then courts of equitywill not interfere. If it can be made, then, if the penalty is to secure the merepayment of money, courts of equity will relieve the party upon paying theprincipal and interest. If it is to secure the performance of some collateral act orundertaking, then courts of equity will retain the bill, and will direct an issue ofquantum damnificatus; and when the amount of the damages is ascertained bya jury, upon the trial of such an issue, they will grant relief upon payment ofsuch damages.' Eq. Jur. 1314.

53

And Mr. Adams, in his Treatise on Equity, (6th Am. Ed.) 107, says, on thesame subject:

54

'The equity for relief against enforcement of penalties originates in the rulewhich formerly prevailed at law, that, on breach of a contract secured bypenalty, the full penalty might be enforced, without regard to the damagesustained. The court of chancery, in treating contracts as matters for specificperformance, was naturally led to the conclusion that the annexation of apenalty did not alter their character; and, in accordance with this view, wouldnot, on the one hand, permit the contracting party to evade performace bypaying the penalty; and, on the other hand, would restrain proceedings toenforce the penalty on a subsequent performance of the contract itself, viz., inthe case of a debt, on payment of principal, interest, and costs; or in that of anyother contract, on reimbursement of the actual damage sustained.'

55

It has accordingly been uniformly held, in cases too numerous for citation, thatcourts of equity will not interfere in cases of forfeiture for the breach ofcovenants and conditions where there cannot be any just compensation decreedfor the breach; for, as was said by Lord Chancellor MACCLESFIELD, inPeachy v. Duke of Somerset, 1 Strange, 447; S. C. Prec. Ch. 568; 2 Eq. Cas.Abr. 227, 'it is the recompense that gives this court a handle to grant relief.'

56

The application of this principle becomes more manifest in cases where a

public interest or policy supervenes, as where, for non-compliance bystockholders in corporations engaged in undertakings of a public nature, with

the terms of payment of installments due on account of their shares, by which a

'The parties might contract upon any terms thought fit, and might impose termsas arbitrary as they pleased. It is essential to such transactions. This struck meas not like the case of individuals. If this species of equity is open to partiesengaged in these undertakings, they could not be car reid on. * * * Why is notthis equity open to contractors for government loans? Why may not they comehere to be relieved when they have failed in making their deposit? And if theycould have relief, how could gov ernment go on? It would be just as difficultfor these undertakings to go on. If compensation cannot be effectually made, itought not to be attempted.'

59

Accordingly, where any penalty or forfeiture is imposed by statute upon the

doing or omission of a certain act, there courts of equity will not interfere tomitigate the penalty or forfeiture, if incurred, for it would be in contravention ofthe direct expression of the legislative will. Story, Eq. Jur. 1326. LordChancellor MACCLESFIELD said, in Peachy v. Duke of Somerset, 1 Strange,477: 'Cases of agreements and conditions of the party and of the law arecertainly to be distinguished. You can never say the law has determined hardly,but you may that the party has made a hard bargain.'

60

In Powell v. Redfield, 4 Blatchf. C.C. 45, an application was made in equity to

restrain suits upon a bond given in pursuance of the revenue laws of the UnitedStates, which was denied on the ground that a court of equity had no right tointerfere, and, by injunction or decree, to virtually repeal the express provisionsof a positive statute. or defeat their operation in the particular case.

61

In Benson v. Gibson, 3 Atk. 395, Lord HARDWICK said: 'Nor is it like thecase of bonds given as a security not to defraud the revenue, because there,where a person is guilty of a breach, it is considered in law as a crime, and thiscourt will not relieve for that reason.'

62

The case of Treasurer v. Patten, 1 Root, 260, was an action for the penalty of a

bond given to oblige the defendant to observe the laws respecting excise, inwhich there was a verdict for the plaintiff and the 200 penalty. Defendantmoved the court, says the report, to chancer said bond. 'By the Court. There isno power short of the legislature can do it; for it is the sum prescribed by an actof the legislature.' So in Keating v. Sparrow, 1 Ball & B. 367, the LordChancellor MANNERS said: 'It has been argued on the part of the plaintiff thatthis court leans against forfeiture, if the party can be compensated; and that hecan in this case, where interest and septennial fines may be given to thelandlord. That principle is applicable to cases of contract between the parties,but not to the provisions of an act of parliament or conditions in law.'63

The fact that the obligation is in the form of a bond to the state does not makeits penalty less a statutory forfeiture, and so outside the jurisdiction of a court ofequity. In the case of U. S. v. Montell, Taney, C. C. 47, it was held that the sumsecured by a bond with sureties, under the act of congress of December 31,1792, c. 45, 7, conditioned that the registry of a vessel should be used solelyfor the vessel for which it is granted, and should not be disposed of to anyperson whatsoever; and if the vessel be lost, or prevented by disaster fromreturning to the port, and the registry shall be preserved, or if the vessel be sold,that the registry shall be delivered up to the collector, is a penalty or forfeitureinflicted by the sovereign power for a breach of its laws, not a liquidatedamount of damages due under a contract, but a fixed and certain punishment foran offense, and not the less so because security is taken before the offense iscommitted in order to secure the payment of the fine if the law should be violated. Chief Justice TANEY, in his opinion, said:

64

'Penalties and forfeitures imposed by statute are not usually provided for bybond and security given in advance. The sum recovered from Montell isrecovered upon a contract; the action was brought upon a contract; and was notand could not have been brought in any of those forms which are usuallynecessary for the recovery of fines or forfeitures imposed by law. Yet this sumwas, in truth, forfeited by Montell, by reason of his violation of a duty imposedby the act of congress; it was a specific penalty upon the owner and master, forthe commission of a particular offense against the policy of that law. Andalthough the amount was secured by bond given for the performance of theduty, yet this duty was a part of the same policy with other duties mentioned inthe act and for which other penalties are inflicted. * * *

65

'It certainly is not to be regarded as a bond with a collateral condition, in which

the jury are to assess the damages which the United States shall prove that theyhave sustained; for, according to that construction, the amount of damageswould not depend upon the amount of the penalty described in the section,

which is graduated according to the size of the vessel, but would depend uponthe discretion of different juries, and larger damages might be given where thepenalty was only $400, than in a case where the penalty was $2,000.66

'This, obviously, is not the intention of the law; and the United States areentitled to recover the whole sum, for which the party is bound, if any one ofthe conditions are broken. Besides, how could the United States prove anyparticular amount of damages to have been sustained by them in a suit on thisbond? What do they lose? It would be difficult, we think, by any course ofproof or any process of reasoning, to show that the United States had sustainedany particular amount of damages in a case of this description, or to adopt anyrule by which the damages could be measured by a jury, or be liquidated byagreement between the parties.

67

'The sum, for which the parties are to become bound, is, manifestly, a penaltyor forfeiture, inflicted by the sovereign power for a breach of its laws.

68

'It is not a liquidated amount of damages due upon a contract, but a fixed andcertain punishment for an offense. And it is not the less a penalty and apunishment because security is taken before the offense is committed, in orderto secure the payment of the fine if the law should be violated.'

69

Recurring now to the particular circumstances of the present case, with a viewto the application of these principles and decisions, we are satisfied that theproper solution of the question now under examination is to be found in twoprincipal considerations.

70

The first of these is that it was not intended by the parties, the state of RhodeIsland on the one hand, and the Boston, Hartford & Erie Railroad Company onthe other, that the obligation given and accepted should be for an indemnityagainst any loss or damage expected to be suffered by the state, in the event thatthe railroad company should fail to build the railroad as required. It is found asa fact that no such loss or damage has in fact ensued. It is equally plain thatnone could possibly have arisen. The security is not to be extended to anysupposed damage to private interests legally affected by the process ofconstructing the work. All damage of this kind to private persons was carefullyprovided for in other parts of the act. As to the state itself, the real party to thearrangement and contract, it could gain nothing in its political and sovereigncharacter by the construction of the road; it could lose nothing by the default. Ifit could be supposed as possible that the state had in view the public interests ofcommerce and trade in the construction of the proposed railroad, and meant to

provide for loss and damage to them by reason of its failure, the obviousanswer is that no computation and assessment of actual damages on thataccount would be practicable, leaving as the alternative that the state, in fixingthe penalty of the bond in the statute, had established its own measure of thepublic loss. The question of damages and compensation was not, because itcould not have been, in contemplation of the parties. There was no room forsupposing that there could be any. To assume that the statute required this bondand security in this sense, in full view of the legal conclusion which it is saidnecessarily flows from its form, and that in the event contemplated, of thefailure to build the road, all that remained to be done was that the state shouldhand back canceled the obligation and security it had been at such pains toexact, is to put upon the transaction an interpretation altogether inadmissible. Itwould have been, upon such an assumption, a vain and senseless thing, andhowever private persons may be sometimes supposed to act improvidently, weare not to put such constructions, when it is legally possible to avoid them,upon the deliberate and solemn acts and transactions of a sovereign power,acting through the forms of legislation.71

The conclusion, in our opinion, cannot be resisted that the intention of theparties in the transaction in question was that if the railroad should not be builtwithin the time limited, the corporation should pay to the state, absolutely andfor its own use, the sum named in the bond and secured by the depositedcertificate of indebtedness. The supposition is not open that the penalty wasprescribed merely in terrorem, to secure punctuality in performance, with thereserved intention of permitting subsequent performance to condone thedefault, for a distinct section of the statute (section 9) declares that in case offailure to complete the road within the time limited, the act itself should be voidand of no effect.

72

In the second place, we think that the sum named in the statute is imposed by itas a statutory penalty for the non-performance of a statutory duty. Theobligation required is that the railroad company shall give a bond, withsatisfactory security, that they will obey the law; that they will complete theirroad as required by it. The language evidently means that, in case they fail to doso, they shall forfeit and pay the sum named; and, in order to insure itspayment, additional parties to the bond, as sureties, are required. It is admittedthat if it does not mean this it does not mean anything, and we have already saidthat we are not at liberty to adopt that alternative. We must construe it ut resmagis valeat quam pereat; and the rule of strictness, in the construction ofpenal statutes, does not require an interpretation which defeats the very objectof the law. The state of Rhode Island was dealing with one of its owncorporations, and it had perfect right to act upon its own policy and prescribe its

own terms, as conditions of powers and privileges sought from its authority.73

For these reasons the decree of the circuit court is reversed, and the cause isremanded, with instructions to enter a decree in favor of the state of RhodeIsland for the sum of $100,000, payable out of the fund in court, with so muchinterest thereon, if any, as has accrued on that sum since the first day ofJanuary, 1872, which is the date when the amount became due. And it isaccordingly so ordered.